Many commercial and industrial electricity users began to receive additional charges this year through their Retailers, relating to the Australian Energy Market Operator’s (AEMO’s) Reliability and Emergency Reserve Trader (RERT), with some seeing sizeable costs being passed through.
The RERT mechanism provides a safety net framework for Jurisdictions and consumers that in the event of market failure, or unusual and often challenging power system conditions, the risk of involuntary load shedding is reduced. During these events to ensure that electricity supply can meet demand and that the power system’s security is maintained AEMO can activate the RERT mechanism by contracting for emergency capacity reserves and directing large commercial RERT panel members to significantly reduce load or shut down.
When the RERT mechanism is activated, there is a cost involved in administering the process and to also compensate the large energy users and generators who participate in the emergency response. This cost is passed on by AEMO to energy retailers who in turn pass it onto the consumer.
AEMO have the ability to contract for:
- Long-notice RERT – up to 12 months in advance via a tendering process;
- Medium-notice RERT – up to 10 weeks in advance via a tendering process which also allows for formation on a MN RERT Panel;
- Short-notice RERT – up to 7 days in advance by use of a SN RERT Panel or the quick calling of tenders.
To date we have seen AEMO primarily use a combination of LN RERT and SN RERT.
RERT is calculated based on purchased load by energy retailers, then passed through to consumers based on their MWh consumption. Charges are received by the retailers in line with AEMO’s calendar which operates in arrears. Currently all RERT costs are recovered on the basis of a Market Customer’s share of consumption from 8am to 8pm AEST Mon-Fri (excluding national holidays) for the relevant AEMO week. However, methodology for costs changes from 26 March 2020; Activation costs will be recovered from those trading intervals where RERT was dispatched in the billing week in which the costs were incurred.
Retailers and customers alike have expressed concern that the RERT is yet another sign that the market is not working and is further evidence of the need for a clear national energy policy. Some Retailers are of the opinion that the LN RERT mechanism, which AEMO reinstated in 2018, has a distortionary impact to encourage removal of supply and demand side options from in-market provision to out-of-market services.
Touching on the subject of a national energy policy; Frank Calabria, CEO of Origin Energy, gives a rather insightful interview with the ABC, where he talks about how “industry desperately needs a strong signal to invest in other technologies to support our rapid uptake of wind and solar”. He also discusses firming generation and the need potentially for a separate capacity market, which could be an answer to path the way for much needed Retailer investment in the sector. Maybe only then could we see the RERT mechanism scrapped. But until then it looks set to stay, with the end user unfortunately picking up the tab.